n.

530 March 2014

ISSN: 0870-8541

Accounting in Agriculture:

Disclosure Practices of Listed Firms

1
Rute Gonalves
1
Patrcia Lopes

1
FEP-UP, School of Economics and Management, University of Porto
 Rute Gonalves
100427014@fep.up.pt
School of Economics and Management, University of Porto

Patrcia Lopes
patricia@fep.up.pt
School of Economics and Management, University of Porto

Accounting in Agriculture: Disclosure practices of listed firms

Abstract
This paper analyzes accounting in agriculture under the International Accounting Standard
(IAS) 41 Agriculture of 270 listed firms worldwide that have adopted International
Financial Reporting Standards (IFRS) until 2010. Previous empirical evidence on the
implementation of this standard is still very scarce. In general it shows that the disclosure
level is low and that comparability is missing. In order to extend previous research on
disclosure practices under the IAS 41, an index of the disclosure of biological assets is
constructed and calculated based in the 2011 annual report. This paper tests several
hypotheses relating the index and firm-level determinants - biological assets intensity,
ownership concentration, firm size, auditor type, internationalization level, listing status,
profitability and sector and country-level determinant - legal status. This variable is
measured using two different proxies, following institutional country classification, namely
the dichotomy common law versus code law countries and cluster classification (Leuz, 2010).
It was found that the mandatory and voluntary disclosure of biological assets is influenced by
biological assets intensity, ownership concentration, firm size, sector and legal status. This
paper seeks to help standard setters to better understand disclosure practices and their
determinants concerning biological assets, and to develop future projects on this issue.

Keywords: biological assets, disclosure index, financial reporting, regulation

JEL classification: M41
1. Introduction

This paper analyzes disclosure practices under the International Accounting Standard (IAS)
41 Agriculture based on the 2011 annual report for 270 listed firms in countries that have
adopted International Financial Reporting Standards (IFRS) or equivalent standards until
2010.
Bearing in mind a firms financial position and performance, disclosure is a way of
transferring economic, financial or non-financial, quantitative or qualitative information. It is
described as mandatory if companies are obliged under a disclosure regulatory regime to
disclose insofar as they are applicable to them (Owusu-Ansah, 1998:608).
Regarding mandatory disclosure, at a first glance, it may seem less reasonable to analyze it.
Afterwards, if firms are obliged to answer to specific information, ideally there would be no
reason for differences to occur in disclosure reporting. But in fact, even when disclosures are
mandatory, researchers have found that firms still have some flexibility in the way they report
the information (Chavent, Ding, Fu, Stolowy, and Wang, 2006: 191). Moreover, the reason
why firms voluntarily disclose is related to several theories, namely, stakeholder theory,
agency theory, signaling theory, legitimacy theory and political economy theory (Oliveira,
Rodrigues, and Craig, 2006; Akhtaruddin, 2005; Inchausti, 1997; Cooke, 1989).
On the topic of biological assets, before adopting the IAS 41, current accounting
principles typically do not respond very well to the particular characteristics of agricultural
business and the information needs of farmers and their stakeholders (Argils and Slof,
2001:361). Empirical evidence (Elad and Herbohn, 2011) shows that there are countries, such
as Australia and the United Kingdom, that tend to disclose more detailed information on
biological assets than other countries, such as France. This indicates that the comparability of
international accounting practices is missing and, in addition, it is possible that determinants
related to the country of origin explain the differences in accounting practices (Nobes, 2008).
Moreover, Argils and Slof (2001) believe that the IAS 41 introduces important
improvements; for example, definition, valuation and presentation of biological assets and
agriculture produce with supportive classifications (mature and immature biological assets,
consumable and bearer biological assets). They also defend that the impact of the IAS 41 is
mainly on a conceptual level and that additional tools are required for its adoption.
Conversely, several authors (Silva, Figueira, Pereira, and Ribeiro, 2012; Elad and Herbohn,
2011; Aryanto, 2011; Fisher, Mortensen, and Webber, 2010; Argils, Bladn, and Monllau,

2
2009; Argils, 2007; Elad, 2007 and 2004; George, 2007) raise the controversy about the
"goodness" of fair value under the IAS 41.
Considering disclosure practices of biological assets as documented in previous literature
(Elad and Herbohn, 2011), the aim of this paper is to explore the following research
questions:

What is the level of disclosure by listed firms on biological assets under the IAS 41?
What firm and country-level determinants could explain the differences in disclosure levels
on biological assets among listed firms?

In order to address these questions, this study establishes several hypotheses that relate the
extent of mandatory and voluntary disclosure of biological assets with firm and country-level
determinants. An index of mandatory and voluntary disclosure of biological assets is
constructed based on IAS 41 disclosure requirements and it is calculated based on the notes of
financial statements included in the 2011 annual report of a worldwide sample composed of
270 companies from 40 IFRS adopting countries 1 . Bearing in mind previous studies, this
paper enhances a wider research based on a larger number of countries and determinants with
recent data.
The paper is organized as follows: Section 2 describes the regulatory framework of the IAS
41. Section 3 provides a literature review, firstly by focusing on the debate of disclosure
requirements of the IAS 41, and then by discussing the influence of country-level factors.
Section 4 introduces the development hypotheses. Section 5 describes the methodology,
presenting the sample and the disclosure index. Section 6 discusses the findings from the
empirical analysis. Finally, the paper provides a brief conclusion.

2. Regulatory framework of the IAS 41

Due to the relative lack of importance of the agricultural sector in global economy,
accounting in this area received little attention from researchers until the implementation of
the IAS 41 (Fisher and Marsh, 2013; Fisher, Mortensen, and Webber, 2010; Herbohn and
Herbohn, 2006).

1
The countries are Australia, Austria, Belgium, Bermuda, Brazil, Cayman Islands, Chile, China, Croatia, Cyprus, Denmark, Egypt, Faroe
Islands, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Kenya, Kuwait, Latvia, Lithuania, Luxembourg, Mauritius,
Netherlands, New Zealand, Norway, Oman, Peru, Philippines, Portugal, Russian Federation, South Africa, Spain, Sweden, Ukraine, United
Arab Emirates and the United Kingdom.
3
 This standard was originally issued in December 2000 and first applied to annual periods
beginning on or after 1st January 2003. The IAS 41 prescribes the accounting treatment for
biological assets during the period of biological transformation and for the initial
measurement of agriculture produce at the point of harvest. Other IFRSs have made minor
consequential amendments to the IAS 41. They include the IAS 1 Presentation of Financial
Statements (as revised in December 2003 and in September 2007), the IAS 2 Inventories (as
revised in December 2003), Improvements to the IFRSs (issued in May 2008) and the IFRS
13 Fair Value Measurement (issued in May 2011).
As a simple rule, the IAS 41 requires that biological assets shall be measured on initial
recognition and at subsequent reporting dates at fair value less costs to sell. This means a
radical change from the traditional historical cost model (Elad and Herbohn, 2011; Lefter and
Roman, 2007). Moreover, the single exception allowed is only applied to initial recognition
and in singular conditions: a market-determined price is not available and the entity cannot
assure a reliable estimate of fair value. In such position, the entity recognizes the biological
assets at cost less depreciation and impairment. Furthermore, agriculture produce shall be
measured at fair value less costs to sell at the point of harvest.
The disclosure required by the IAS 41 comprises both financial and non-financial
information that corresponds to mainly mandatory information and also some recommended
information. On the whole, the mentions concerning the notes from the annual financial
statements form approximately 25% of the entire standard [IAS 41] (Lefter and Roman,
2007:20). Therefore, paragraphs 40-57 of the IAS 41 cover mandatory information, except
paragraphs 43 and 51, which correspond to recommended information.
There is a limited scope project from the International Accounting Standards Board (IASB)
to consider an amendment to the IAS 41 in relation to bearer biological assets (such as fruit
trees, grape vines). Instead of using fair value as prescribed by the IAS 41, a possible
alternative is to measure these assets, once mature, under the cost model in accordance with
the IAS 16 Property, Plant and Equipment. Recently, the European Financial Reporting
Advisory Group (EFRAG) published its final comment letter on the IASB Exposure Draft
(ED)/2013/8 Bearer Plants (issued in October 2013). The amendments to the IAS 41 are
expected to be finalized by the first quarter of 2014 and to have an effective date in 2015.
Depending on the final decision, it will cause an impact on measurement and disclosure
practices of biological assets. Furthermore, it shows that the IAS 41 is far from stabilizing and
enhances the timeliness and the relevance of this study.

4
3. Literature review

3.1. Disclosure requirements of the IAS 41

There are several studies in the literature that have evaluated the impact of the
implementation of the IAS 41 (Elad and Herbohn, 2011; PriceWaterHouseCoopers (PWC),
2011 and 2009; Silva, Figueira, Pereira, and Ribeiro, 2012; Scherch, Nogueira, Olak, and
Cruz, 2013; Theiss, Utzug, Varela, and Beuren, 2012).
Elad and Herbohn (2011) have developed a survey concerning biological assets in three
countries, Australia, the United Kingdom and France. They have concluded that, as main
lessons, the costs of measuring and reporting biological assets at fair value outweigh the
benefits and that the fair value accounting model prescribed by the IAS 41 increases the
volatility of earnings. In addition, there is a lack of comparability of disclosure practices, in
which French firms incline not to disclose complete information on biological assets. They
argue that there is a need for the IASB to revisit the IAS 41. Another concern is the apparent
need for the auditor to write an audit report about the firms financial statements that claims
the readers attention to inherent uncertainties regarding the valuation of biological assets
under IAS 41 (Elad and Herbohn, 2011:107). As a matter of fact, in some cases, auditors and
managers collide in disagreement. Also, this study has developed a checklist of disclosures
prescribed by the IAS 41 and each firm was assigned a score based on the percentage of
disclosed items.
PWC (2011 and 2009) has elaborated two international studies concerning the impact of
adopting the IAS 41 in the timber sector. The main goal was to provide what might be
considered establishing best practices in fair valuing of this sector and the related disclosures.
Additionally, in both studies, PWC has identified the major pronouncements described in the
notes of the financial statements, highlighting some of the main constraints, comparisons and
dissimilarities. In general, firms have different levels of transparency regarding biological
assets disclosure and usually they do not discuss fair valuation assumptions, so there is an
opportunity for further improvement. PWC (2011) has recommended several practices in this
field, namely: to present key valuation assumptions (for example, the forest and harvest plans
and the complexity of the structure of the asset); to discuss expected future prices and costs to
better understand the valuation adopted; to provide a sensitivity analysis related to each
weight assumption used in the valuation that has an effect on the value in case of a change
(for example, discount rate, prices, costs and growth).
5
 Silva, Figueira, Pereira, and Ribeiro (2012) have developed a disclosure index concerning
the information related to the agricultural sector of 45 Brazilian firms regarding the 2010
annual report. The disclosure of the types of biological assets and the reconciliation of the
carrying value of their changes are the most frequently reported items, but other items are
neglected, such as management risks and other restrictions of biological assets. They have
concluded that a higher transparency level in disclosure helps to mitigate information
asymmetry. As a consequence, stakeholders improve their understanding of the biological
assets activities.
Regarding Brazils adoption of the IFRS and a sample of 24 traded Brazilian firms in 2010,
Scherch, Nogueira, Olak, and Cruz (2013) have concluded that, on average, there was 57% of
conformity with CPC 29 - Pronunciamento tcnico CPC 29 - Ativo Biolgico e Produto
Agrcola (standard equivalent to the IAS 41 in Brazil). Bearing in mind that the IAS 41 is a
new pronouncement, this study highlighted that measuring fair value may imply several
constraints to the stakeholders, including preparers and researchers. A large disclosure about
biological assets would tend to reduce the uncertainty associated with biological assets
reporting. In this respect, firms interested in improving the quality of their reporting shall
increase the amount of informative disclosure since a good quality score cannot be obtained
with a limited number of sentences (Hooks and Staden, 2011:211).
Similarly, Theiss, Utzug, Varela, and Beuren (2012) have investigated the implementation
of CPC 29 guidelines of 21 Brazilian listed firms in 2010. Using a disclosure index, the
results stated that 95% of the sample complies partially with general information on
biological assets. The study has suggested that some of the information required is considered
confidential by the firm administration; therefore, disclosure items were not fully disclosed.
Consequently, the stakeholders, including auditors and regulators, shall play an important role
in analyzing if the biological assets disclosure is sufficient or not.

3.2. Influence of country-level factors

Several studies have elected the institutional factor as the main influence for firms
reporting practices (Wysocki, 2011; Nobes, 2008; Djankov, Glaeser, La Porta, Lopez-de-
Silanes, and Shleifer, 2003). In fact, even though the aim with the IFRS is to assure
accounting comparability between countries, it does not eradicate the national, industry and
firm-level institutional influences (Wysocki, 2011).

6
 Taking into consideration this seminal factor, some classifications have been developed in
the literature (Leuz, 2010; Nobes, 2008; La Porta, Lopez-de-Silanes, Shleifer, and Vishny,
1998).
La Porta, Lopez-de-Silanes, Shleifer, and Vishny (1998) have analyzed legal rules related
to shareholders and its origin and the quality of enforcement in a sample of 49 countries. They
have divided the firms by common law and code law country classification. Nobes (2008) has
classified countries into two groups, namely strong equity, commercially driven (for example,
the Netherlands and the United Kingdom) and weak equity, government driven, tax-
dominated (for example, Germany, France and Italy).
Nowadays, there are other alternative taxonomies to the common law versus code law
perspective, for example, cluster classification (Leuz, 2010) using regulatory and reporting
practice variables. Leuz (2010) has suggested that outsider economies with large and
developed stock markets, dispersed ownership, strong investor protection and strong
enforcement (cluster 1) exhibit higher disclosure scores and more informative earnings than
insider economies with less developed stock markets, concentrated ownership and weak
investor protection. Insider economies are divided into two clusters, diverging in the strength
of their legal systems; therefore, those economies with strong enforcement (cluster 2) show
higher transparency scores than the others (cluster 3). Furthermore, there is empirical
evidence that the paradigm is changing. For example, Hellmann, Perera, and Patel (2013)
have investigated if Germany is moving from the traditional Continental European accounting
model to a middle position between this one and the Anglo-American accounting model, with
the promulgation of the Act to Modernize Accounting Law (issued in May 2009). This Act
assured some reforms to the code, for example removing the close connection to tax rules
and introducing new recognition and valuation regulations, which changed traditional
principles of orderly accounting (Hellmann, Perera, and Patel, 2013:1). Also, Gastn, Garca,
Jarne, and Lanez Gadea (2010) and Lewis and Salter (2006) have argued that the United
Kingdom should be included in the European accounting model, instead of being considered a
common law country.

4. Development of hypotheses

Based on previous studies, this study focuses on the following two research questions:

What is the level of disclosure by listed firms on biological assets under the IAS 41?

7
 What firm and country-level determinants could explain the differences in disclosure levels
on biological assets among listed firms?

Conceptually, several theories can explain firm disclosure. The positive accounting theory
supports the effort of explaining and predicting accounting practices, in this case related to
biological assets. The main goal of positivist accounting research is to corroborate a specific
accounting fact with related causal explanations (Luft and Shields, 2013:1). Although the
results must be replicable by other researchers in the same setting () and persuasive within
a community of researchers, usually these explanations have implicitly a subjective decision.
In order to assure causality, there is a need to eliminate alternative causal explanations.
According to Luft and Shields (2013), there are two possible ways of doing that. Firstly, by
providing credible evidence against other possible justifications. Secondly, by narrowing the
specification of context that reduces the number of alternative casual explanations. This paper
adopts the second possibility, electing firm and country-level segments.
Glaum, Schmidt, Street, and Vogel (2012:9) have supported that company-level
incentives are relatively more important than country-level factors in countries with high
economic development and strong institutions. In less developed countries, country-level
factors are more important than company-level incentives. Regarding the diversity of
countries of the sample of 270 listed firms worldwide, it seems recommendable to investigate
both influences.
The research model includes a disclosure index and explores several factors that are
expected to be related to the level of disclosure, namely, firm-level variables - biological
assets intensity, ownership concentration, firm size, auditor type, internationalization level,
listing status, profitability, sector - and country-level variable - legal status.
Finally, Ittner (2013:4) has explained that accounting practices in themselves have no
effect on outcomes. It is only through the use of the information for decision-making,
performance evaluation, or other purposes that accounting systems cause changes in
outcomes. In this field, a variable cannot have a causal effect on an outcome unless there is
an underlying causal mechanism. For each independent variable, the casual mechanisms and
the supporting theories are identified and explained as follows.

4.1. Firm-level variables

Biological assets intensity

8
 Scherch, Nogueira, Olak, and Cruz (2013) have stated that the disclosure level increases
with the increasing intensity of biological assets. Considering other non-financial assets, for
example goodwill impairment, firms have a higher propensity to disclose when they have
larger amounts of non-financial assets (Amiraslani, Iatridis, and Pope, 2013; Heitzman,
Wasley, and Zimmerman, 2010). Moreover, goodwill impairment requires valuation skills, so
there is also a strong expectation that companies allocate more resources to improve quality
report when they have a relative materiality position (Glaum, Schmidt, Street, and Vogel,
2012; Shalev, 2009). That could be the case of biological assets, given the complexity of
measurement and disclosure practices. Another example is the disclosure level of provisions,
which is a rational consequence of application of the materiality principle (Chavent, Ding,
Fu, Stolowy, and Wang, 2006:188).
Bearing in mind the stakeholder theory, Silva, Figueira, Pereira, and Ribeiro (2012) have
expected preparers of financial reporting of biological assets to assure the disclosure level
regulated by the IAS 41 in order to provide information to users of such financial statements.
This statement is even more significant if firms have material amounts of biological assets.
The above considerations indicate an expected positive sign for the relation.
H1: There is a significant positive association between biological assets intensity and the
extent of mandatory and voluntary disclosure concerning biological assets.

Ownership concentration

The firms reporting incentives are influenced by ownership structure (Glaum, Schmidt,
Street, and Vogel, 2012; Leuz, 2010). Bearing in mind that agency problems arise because of
the separation of ownership and control (Jensen and Meckling, 1976), agency costs increase
as the ownership structure becomes more dispersed (Fama and Jensen, 1983). In order to
decrease agency costs, companies with higher ownership diffusion have stronger incentives to
provide transparent financial reporting (Oliveira, Rodrigues, and Craig, 2006).
Also, the IAS are settled to assure that information is provided to shareholders, to decrease
information asymmetry between managers and external users and to enhance disclosure
transparency (Ding, Hope, Jeanjean, and Stolowy, 2007). For firms that are controlled by
several investors, higher demand for public disclosure may also lead to higher incentives for
disclosure (Daske, Hail, Leuz, and Verdi, 2013).
The above considerations indicate an expected negative sign for the relation.

9
 H2: There is a significant negative association between ownership concentration and the
extent of mandatory and voluntary disclosure concerning biological assets.

Firm size

Some studies indicate firm size as a determinant of compliance with reporting standards
(Amiraslani, Iatridis, and Pope, 2013; Glaum, Schmidt, Street, and Vogel, 2012; Oliveira,
Rodrigues, and Craig, 2006). Glaum, Schmidt, Street, and Vogel (2012:10) have
demonstrated that larger companies tend to have more resources designated to accounting
departments than smaller companies, allowing for a higher quality of financial reporting.
Depoers (2000) has confirmed this argument. Furthermore, costs of increased disclosure are
well supported by larger firms (Amiraslani, Iatridis, and Pope, 2013).
Larger firms are likely to have a higher percentage of outside capital and also enlarged
agency costs (Jensen and Meckling, 1976); therefore, these firms are required to assure a
more developed level of information to stakeholders, especially financial analysts (Depoers,
2000).
The above considerations indicate an expected positive sign for the relation.
H3: There is a significant positive association between firm size and the extent of
mandatory and voluntary disclosure concerning biological assets.

Auditor type

Auditing is an effective function of restraining managers opportunistic reporting conduct

(Tsalavoutas, 2011). Consequently, and regarding agency theory, independent auditors reduce
agency costs (Jensen and Meckling, 1976). Watts and Zimmerman (1983:615) have
emphasized that it is possible () only if the market expects the auditor to have a nonzero
level of independence. Committees and penalties, including reputation loss, are some of the
incentives for auditors to assure their independence. To avoid reputation costs, these firms
demand higher levels of disclosure (Oliveira, Rodrigues, and Craig, 2006; Chalmers and
Godfrey, 2004).
Furthermore, prior literature explains the strength of enforcement of accounting standards
by the existence of stronger audit firms (Hope, 2003). The larger the audit firm, the higher is
its perceived quality (DeAngelo, 1981). Several studies have revealed a positive association
between disclosure level and being audited by the Big 4 auditing firms (Glaum, Schmidt,

10
Street, and Vogel, 2012; Cascino and Gassen, 2011; Hodgdon, Tondkar, Adhikari, and
Harless, 2009).
The above considerations indicate an expected positive sign for the relation.
H4: There is a significant positive association between auditor type and the extent of
mandatory and voluntary disclosure concerning biological assets.

Internationalization level and listing status

The level of disclosure is positively related to the degree of foreign activity in the firm
(Daske, Hail, Leuz, and Verdi, 2013; Amiraslani, Iatridis, and Pope, 2013) and the firms
listing status (Amiraslani, Iatridis, and Pope, 2013; Cooke, 1992). Managers of firms that
operate in several geographical areas have to provide larger disclosure, bearing in mind the
higher complexity of the firms activities (Cooke, 1989).
Due to the signaling theory, international trading activities (Oliveira, Rodrigues, and Craig,
2006; Depoers, 2000) and the presence in several stock exchanges (Oliveira, Rodrigues, and
Craig, 2006; Hope, 2003) imply large and complex amounts of information to control, and
consequently, this influences firms to express their international position to stakeholders by
improving disclosure.
The above considerations indicate an expected positive sign for both relations.
H5: There is a significant positive association between internationalization level and the
extent of mandatory and voluntary disclosure concerning biological assets.
H6: There is a significant positive association between listing status and the extent of
mandatory and voluntary disclosure concerning biological assets.

Profitability

Taking into consideration the agency theory (Jensen and Meckling, 1976), disclosure
controls a managers performance. Managers disclose detailed information in order to assure
their compensation and position. Additionally, the signalling theory explains that, when the
rate of return is high, firms are expected to disclose good news to prevent any reduction of
their share value (Oliveira, Rodrigues, and Craig, 2006).
Lan, Wang, and Zhang (2013) and Chavent, Ding, Fu, Stolowy, and Wang (2006) have
considered firm performance, measured by the return on equity, as a relevant explanatory
variable for the disclosure level. Lang and Lundholm (1993:250) have noticed that "the results
from the theoretical and empirical research suggest disclosure could be increasing, constant,
11
or even decreasing in correspondence with firm performance." As an example, in case of
negative earning information, firms are more likely to disclose in order to reduce the
possibility of legal liability.
Because of the mixed empirical evidence in prior literature, there is no strong expectation
regarding the sign of this variable.
H7: There is an association between profitability and the extent of mandatory and voluntary
disclosure concerning biological assets.

Sector

Due to the signaling theory, firms that belong to the same sector are concerned with
assuring the same level of disclosure in order to prevent an undesirable assessment by the
market (Oliveira, Rodrigues, and Craig, 2006). Therefore, firms tend to be motivated to
follow their corresponding sector practice (Amiraslani, Iatridis, and Pope, 2013). With regard
to the legitimacy theory, in reaction to new and challenging demands, for example IFRS
reporting requirements, companies may develop common industry practices to legitimize their
behaviour Glaum, Schmidt, Street, and Vogel (2012:11).
In terms of mandatory disclosure, Rahman, Perera, and Ganesh (2002) have compared
accounting regulations and accounting practices in Australia and New Zealand and have
concluded that sector influences the level of disclosure. In fact, the nature of activities within
an industry could also be a reason for the diversity in both the amount and type of disclosure
and measurement practices among firms (Rahman, Perera, and Ganesh, 2002:53).
The above considerations indicate an expected positive sign for the relation in the:
agriculture, forestry and fishing sector, in the mining sector and in the manufacturing sector,
as these are associated with biological assets.
H8: There is a significant positive association between sector and the extent of mandatory
and voluntary disclosure concerning biological assets.

4.2. Country-level variable

A country-level variable, such as legal status, may act as a summary measure for a
countrys approach to a number of regulatory issues and therefore it could have significant
explanatory power in regressions involving institutional (or country) variables (Leuz,

12
2010:242). In this paper, legal status is the only country-level variable and it is divided into
two classifications as follows.

Legal status

Considering the contingency theory, Doupnik and Salter (1995) have suggested that the
external environment, the institutional structure and the cultural values support accounting
divergence between countries. Furthermore, the institutional complementarities among
countries imply the combination of institutional factors that are commonly detected (Leuz,
2010). Also, classifying national accounting systems has long been an aspect of accounting
research (Nobes and Stadler, 2013:1).
Due to the diversity of country classifications, this paper adopts two approaches, namely:
the dichotomy common law versus code law countries and cluster classification. Regarding
the first approach, firms that belong to common law countries are expected to converge to the
IFRS (Nobes, 2008) and to improve their accounting quality (La Porta, Lopez-de-Silanes,
Shleifer, and Vishny, 1998). With regard to cluster classification, Leuzs (2010) cluster
classification is adopted using regulatory and reporting practice variables. It consists of three
clusters, as previously mentioned, namely: cluster 1 outsider economies, cluster 2 insider
economies with better legal enforcement systems, and cluster 3 - insider economies with
weaker legal enforcement systems. The firms that belong to cluster 1 tend to exhibit higher
disclosure levels. Appendix A presents Leuzs (2010) cluster classification.
The above considerations indicate an expected positive sign for the relation in the following
branches: common law and cluster 1.
H9: There is a significant positive association between firms that belong to common law
countries and the extent of mandatory and voluntary disclosure concerning biological assets.
H10: There is a significant positive association between firms that belong to cluster 1 and
the extent of mandatory and voluntary disclosure concerning biological assets.

The measurement, hypotheses and expected signals of the independent variables introduced
above are described in the table 1. The data were collected in Data Stream.
The biological assets intensity (BIO) corresponds to a ratio between biological assets and
total assets. This measure identifies which firms have a relatively material proportion of
biological assets.

13
 Ownership concentration (HELD) is the ratio between the number of closely held shares
(shares held by insiders) and the common shares outstanding (the most recent common shares
outstanding available in the database, which is the difference between issued shares and
treasury shares).
Prior literature measures firm size (SIZE) in several different ways. In this paper, firm size
corresponds to the logarithm of total assets.
Auditor type (AUDIT) is a dummy variable coded 1 for clients of the Big 4 auditing firms
and 0 otherwise. In 2011, the Big 4 auditors are PWC, Deloitte Touche Tohmatsu, Ernst and
Young and KPMG.
The internationalization (INT) level corresponds to a ratio between foreign sales and total
sales2.
Listing status (STOCK) is a dummy variable coded 1 if the firm is listed on one foreign
stock exchange or multilisting and 0 otherwise.
Profitability (ROE) corresponds to the proxy return on equity. This is measured by the ratio
between pretax income and common equity3.
Sector (SECTOR) relates to SIC - code classification (two-digit), namely: sector 1
agriculture, forestry and fishing (01-09), sector 2 mining (10-14), sector 3 manufacturing
(20-39), and other sectors.
Finally, the legal status is measured by two proxies (LEGAL and CLUSTER). A
classification should be based on detailed observation of characteristics and the characteristics
chosen should ideally be informed by the purpose of the classification (Nobes and Stadler,
2013:12). Consequently, the LEGAL variable is computed based on Nobes (2008), La Porta,
Lopez-de-Silanes, Shleifer, and Vishny (1998)4 and corresponds to a dummy variable coded 1
for firms that belong to a common law country, and 0 if firms belong to a code law country.
The CLUSTER variable is computed based on Leuzs (2010) cluster classification regarding
regulatory and reporting practice variables. This classification includes an updated earnings
management and opacity score from Leuz, Nanda, and Wysocki (2003), which has been
emphasized by Nobes and Stadler (2013:10) as having specified the purpose of their own

2
It is expected that firms internationalize by opening explorations in different countries. Probably, in this case, foreign sales are low because
each exploration sells to the country where it is located. Therefore, this variable could be measured, for example, by the number of countries
where the firms are located (instead of sales ratio adopted). Therefore, the sales by geographic segment variable was identified in Data
Stream. This was tested for a sample of firms, considering the ratio between this variable WS19601 (selecting segments of foreign countries)
and the total of sales, and the results were the same that are obtained by variable WS08731. Consequently, in this paper this is the adopted
variable (WS08731).
3
Instead of adopting the WS08301 that corresponds directly to return on equity-total %, the purpose of using the ratio between pretax
income WS01401 and common equity WS03501 was to neglect the tax effect.
4
To assure this classification in a few firms whose countries are not considered in both studies, it was used as source of information:
https://www.cia.gov/library/publications/the-world-factbook/fields/2100.html
14
attempts, apart from organizing knowledge. In case of the firms whose countries are not
considered in Leuzs (2010) cluster classification, some of them were classified according to
Amiraslani, Iatridis, and Pope (2013), who follow the same taxonomy, and a few other firms
were classified based on the proximity of their countries to other countries included in the
clusters.

Table 1. Hypotheses, variable proxies and expected signals.

Hypotheses Proxies Expected signals
Biological assets intensity BIO - Biological assets (WS18277, or WS18278, or WS18258) Positive
divided by total assets (WS02999)
Ownership concentration HELD Closely-held shares percentage (WS08021) Negative
Firm size SIZE - Natural logarithm of the total of assets (WS02999) Positive
Auditor type AUDIT - Binary variable based on whether the firm is audited by a Positive
Big 4 auditing firm (WS07800)
Internationalization level INT - Foreign sales percentage (WS08731) Positive
Listing status STOCK - Binary variable based on whether the firm is listed in Positive
one or more than one foreign stock exchange (WS05427)
Profitability ROE Pretax income (WS01401) divided by common equity No expected
(WS03501) signal
Sector SECTOR Dummy variable based on whether the firm belongs to Positive
sector 1, 2, 3 or others regarding SIC Code classification
LEGAL - Binary variable based on whether the firm belongs to a Positive
common law or code law country
Legal status
CLUSTER Dummy variable based on whether the firm belongs Positive
to cluster 1, 2 or 3, regarding Leuzs (2010) cluster classification

5. Methodology
5.1. Sample

To examine the potential associations between mandatory and voluntary disclosure of

biological assets and firm and country-level determinants, this paper explores disclosure by
listed firms covering biological assets during the year 2011. The IFRS 1 - First-time Adoption
of International Financial Reporting Standards allows some exemptions and exceptions which
may cause some constraints when analyzing and making inferences about the information of
the year of adoption (Gastn, Garca, Jarne, and Lanez Gadea, 2010). Consequently, 2010
should be the limit year to consider firms that have adopted the IFRS (or equivalent
standards).
The data were collected in Data Stream. Firstly, countries were selected that have adopted
the IFRS until 2010. Then, considering the corresponding sample of countries, firms that have
biological assets were selected. The criterion was following one of the biological assets
variables (WS18277 net book value; WS18278 - gross, WS18258 current). The result was
282 firms from several countries and different sectors, but 12 of them do not have an

15
available 2011 annual report, so the actual number of analyzed firms was 270. When any of
the proxies of the independent variables was not available in DataStream, there was an effort
to obtain information in the 2011 annual report to mitigate the effect of missing information
in this paper.

5.2. The disclosure index

Based on prior research (Lan, Wang, and Zhang, 2013; Santos, Ponte, and Mapurunga,
2013; Lopes and Rodrigues, 2007; Oliveira, Rodrigues, and Craig, 2006; Akhtaruddin, 2005;
Owusu-Ansah, 1998; Inchausti, 1997), this paper includes a disclosure index as a dependent
variable. With regard to biological assets, Scherch, Nogueira, Olak, and Cruz (2013), Silva,
Figueira, Pereira, and Ribeiro (2012), Theiss, Utzug, Varela, and Beuren (2012) have adopted
this approach in the Brazilian context.
The index is constructed based on the disclosures required by the IAS 41 and calculated
with the notes of consolidated financial statements included in the 2011 annual report of this
sample of firms5. Although there are several ways of communicating company information,
for example interim reporting, press releases, letters, etc., the annual report is still considered
the major medium disclosing information (Akhtaruddin, 2005: 407). In addition, using
qualitative research methods, for example () analysis of internal documents, field
researchers can get a better understanding of the attributes of key constructs in their research
context (Ittner, 2013:3).
Three categories compose this index: mandatory items, non-mandatory but recommended
items and non-mandatory and non-recommended items. The first and the second
classifications cover all disclosure items required by the IAS 41. The last category
corresponds to voluntary information indicating that firms exceed the mandatory information.
Given the intrinsic complexity of biological assets fair-value valuation, non-mandatory and
non-recommended items are only applicable to firms that measure biological assets at fair
value. This third classification is constructed according to PWC (2011). Three topics are
identified as being followed by their clients in disclosure practices, where the timber sector is
concerned, namely: revealing the complexity of valuation parameters although there is limited
information regarding the effect on the valuation; providing more information on the effects
of variations in key valuation factors; exposing firm assumptions on future prices and costs,

5
The analysis of the annual reports was performed by one coder. To assure robustness of the calculation of the index, firstly the annual
reports were read and then, it was necessary to repeat the analysis in order to decide whether each item is applicable or not to each firm.
16
as well as disclosing a sensitivity analysis with multiple parameters. The items selected for
inclusion in the disclosure index and the results are shown in table 3.
Based on the literature about this research topic (Santos, Ponte, and Mapurunga, 2013;
Lopes and Rodrigues, 2007; Owusu-Ansah, 1998), the disclosure index is dichotomous,
unweighted and adjusted for non-applicable items. Firstly, a score of 1 is assigned to an item
if it is disclosed, and a score of 0 otherwise, which means that the index is dichotomous. The
maximum number of items is 40. Secondly, each item is equally important for all three
categories. Although the weighted approach () allows distinctions to be made for the
relative importance of information items to the users (Inchausti, 1997:49), here the
assumption is that an unweighted approach will result in a minor bias, because the effort of
the index relies in all three categories. Finally, the index follows a tolerant criterion (Santos,
Ponte, and Mapurunga, 2013) and covers the applicability of any item to each firm. It
excludes the items when there is no information in notes about one disclosure item of the IAS
416. Furthermore, in the case of disclosure of biological assets, adopting an adjusted index
neglects the effect if the firms of the sample measure biological assets at fair value or at
historical cost.
Consequently, the total score of the mandatory and voluntary disclosure index for
biological assets (Index) in a firm is:
m

d i
Indexi i 1
(1)
m
where di = 0 or 1, as follows: di = 1 if the item is disclosed and di = 0, otherwise; m =
maximum number of applicable items a firm may disclose.

6. Results

6.1. Descriptive analysis

Table 2 presents the descriptive statistics for the variables employed in the paper. There is a
wide range in the disclosure index (INDEX) in the sample: the highest disclosure score
obtained is 1 and the lowest is 0. Appendix B presents the 10 firms of the sample that have the
higher and the lower disclosure level with the corresponding country and sector. The mean
disclosure score is 56.55 (median=59.00). The average biological assets intensity (BIO) is
11.65% but the median is less than 4.52% and this variable lists a maximum of 95.38%. The

6
There is only one exemption, the following item of the IAS 41 (parag.49): financial risk management strategies related to agricultural
activity. Risk strategy related to biological assets is highly important in the sense that a firm is obliged to declare the overall strategy in the
annual report. Therefore, if this item contains no information it is considered in the index as a non-disclosed item.
17
firm size (LOG (SIZE)) mean is 13.02% (median=12.87%) and registers a maximum of
17.84%. In terms of ownership concentration (HELD), internationalization level (INT) and
profitability (ROE), even though some observations are collected in annual reports when the
DataStream has no information, these are the independent variables with more missing values
(n=228, 221 and 256, respectively). With regard to profitability, 9 observations were removed
because they were identified as outliers.

Table 2. Descriptive statistics.

Sample: 1 270
INDEX BIO LOG (SIZE) HELD INT ROE
Mean 0.565481 11.65202 13.01690 54.31934 45.99636 8.576259
Median 0.590000 4.513598 12.86624 60.21500 40.59000 9.772396
Maximum 1.000000 95.38257 17.83635 99.74000 100.0000 52.01787
Minimum 0.000000 0.000713 7.270313 0.010000 0.000000 -57.20357
Std. Dev. 0.208958 16.64833 1.864843 28.24002 38.60310 16.38667
Skewness -0.432659 2.350904 0.070816 -0.425770 0.109191 -0.676526
Observations 270 270 270 228 221 256

AUDIT Frequency Percent Index STOCK Frequency Percent Index

Firm audited by a Non- Firm not listed on any foreign
Big 4 auditing firm 72 26.67 0.56 stock exchange 214 79.26 0.56
Firm audited by a Big 4 Firm listed on one foreign stock
auditing firm 198 73.33 0.57 exchange or multilisting 56 20.74 0.58

SECTOR Frequency Percent Index

Agriculture, forestry, &
fishing 78 28.89 0.61
Mining 8 2.96 0.48
Manufacturing 150 55.56 0.57
Others 34 12.59 0.46

LEGAL Frequency Percent Index CLUSTER Frequency Percent Index

Common law 107 39.63 0.59 Cluster 1 103 38.15 0.58

Code law 160 59.26 0.55 Cluster 2 97 35.93 0.57
No label 37 1.11 0.48 Cluster 3 58 21.48 0.53
No label 128 4.44 0.50

In terms of dummy variables, the previous tables provide the average disclosure index for
each variable. The majority of the sample of firms (73.33%) is audited by a Big 4 auditing
firm (AUDIT), only 20.74% corresponds to firms that are listed in one foreign stock exchange
or multilisting (STOCK) and the average disclosure index is almost the same for both
variables, about 57. Taking into consideration the sector, 28.89% of the sample of firms
relates to agriculture, forestry and fishing and represents the highest average disclosure index
of 61 (SECTOR). The frequency of sector Others is presented in Appendix C.

7
These firms represent the countries Cyprus, Mauritius and United Arab Emirates. Regarding https://www.cia.gov/library/publications/the-
world-factbook/fields/2100.html, these countries have a mixed classification: Cyprus and Mauritius correspond to common law/civil law and
United Arab Emirates corresponds to muslim law/civil law.
8
These firms represent the countries Cayman Islands, Croatia, Cyprus, Kuwait, Mauritius, Oman, Russian Federation, Ukraine and United
Arab Emirates. These countries are not included in Leuzs (2010) cluster classification. Furthermore, there is no additional information that
supports a plausible classification.
18
 Finally, considering legal status (LEGAL), 59.26% corresponds to the firms belonging to a
code law country and the sample is relatively homogenous in terms of cluster classification
(CLUSTER). Once again, there are no significant differences in the average disclosure
indexes.
Table 3 summarizes, by disclosure item, the number of firms that disclose biological assets
information. The most frequently reported items are: A reconciliation of changes in the
carrying amount of biological assets between the beginning and the end of the period
(n=248; parag.50); This reconciliation includes desegregation (n=242; parag.50); and A
description of each group of biological assets (n=230; parag.41). This evidence is consistent
with prior literature (Silva, Figueira, Pereira, and Ribeiro, 2012) for Brazilian firms. The least
reported items are: The range of estimates within which fair value is highly likely to lie
(n=2; parag.54), when the entity measures biological assets at their cost less any accumulated
depreciation and any accumulated impairment losses; and Unfulfilled conditions and other
contingencies attaching to government grants (n=1; parag.57).
Non-mandatory and non-recommended items are the most frequently reported (mean=75; 3
items), followed by mandatory items (mean=68; 33 items), and non-mandatory but
recommended items (mean=61; 4 items). These findings suggest that there is an opportunity
for improving biological assets disclosure, as concluded by PWC (2011) for the timber sector.
Additionally, Appendix D presents the ranking of countries by the number of firms and by
their average disclosure level.

Table 3. The disclosure index of the sample of firms.

Paragraphs Score (if Disclosure index Number
IAS 41 disclosed) of firms
Mandatory items the entity discloses
40 An aggregate gain or loss arising during the period:
40 1 Initial recognition of biological assets 14
40 1 Initial recognition of agriculture produce 5
40 1 Related to change in fair value less costs to sell biological assets 201
41 1 A description of each group of biological assets 230
42 1 The description in paragraph 41 is narrative 174
42 1 The description in paragraph 41 is quantified 204
46 1 A description of the nature of an entity's activities with each group of biological assets 123
46 A description of non-financial measures or estimates of physical quantities:
46 1 Assets on hand at the end of the period 156
46 1 Agriculture produce output during the period 60
47 1 The methods and assumptions applied in determining the fair value of each group of agricultural 109
produce at the point of harvest and each group of biological assets
48 1 The fair value less costs to sell agricultural produce harvested during the period, determined at 112
the point of harvest

19
49 1 The information about biological assets whose title is restricted or that are pledged as security 38
49 1 The amount of commitments for developing or acquiring biological assets 24
49 1 The financial risk management strategies related to biological assets 88
50 1 A reconciliation of changes in the carrying amount of biological assets, between the beginning 248
and the end of the period
50 1 This reconciliation includes desegregation 242
Additional disclosures when the fair value cannot be measured reliably
54 The entity measures biological assets at their cost less any accumulated depreciation and any
accumulated impairment losses the entity discloses
54 1 A description of the biological assets 38
54 1 An explanation of why fair value cannot be measured reliably 49
54 1 The range of estimates within which fair value is highly likely to lie 2
54 1 The depreciation method used 26
54 1 The useful lives or the depreciation rates used 33
54 1 The gross carrying amount and the accumulated depreciation (aggregated with accumulated 31
impairment losses) at the beginning and end of the period
55 1 Gain or loss recognized on disposal of such biological assets 7
55 1 Impairment losses, in case of disposal 0
55 1 Reversals of impairment losses, in case of disposal 0
55 1 The depreciation, in case of disposal 12
56 The fair value of biological assets previously measured at cost less any accumulated depreciation
and impairment losses become reliably measurable during the current period - the entity
discloses
56 1 A description of the biological assets 0
56 1 An explanation of why fair value has become reliably measurable 0
56 1 The effect of the change 0
57 Government grants the entity discloses
57 1 The government grants 26
57 1 The nature and extent of government grants recognized in the financial statements 10
57 1 Unfulfilled conditions and other contingencies attaching to government grants 1
57 1 Significant decreases expected in the level of government grants 0
Non-mandatory but recommended items the entity discloses
43 A quantified description of each group of biological assets distinguishing between:
43 1 Consumable and bearer assets 56
43 1 Mature and immature assets 77
51 1 The amount of change in fair value less costs to sell included in profit or loss due to physical 78
changes and due to price changes
51 1 This information is presented by the group of biological assets 33
Non-mandatory and non-recommended items the entity discloses
NA 1 The complexity of various parameters with limited information regarding the effect on the 124
valuation
NA 1 More information on the effects of variations in key factors 53
NA 1 The assumptions on future prices and costs, as well as disclosing a sensitivity analysis with 47
multiple parameters
40

Pearsons correlation matrix between all variables is shown in Appendix E. It is commonly

established that correlations between independent variables are not risky in multivariate
analysis unless they exceed 0.80 or 0.90 (Gujarati, 1995). Since there are no highly correlated
independent variables, all variables are maintained in the model. The dependent variable is
20
positively correlated with biological assets intensity at 1% level of significance. The table also
demonstrates that firm size is negatively correlated with biological assets intensity and
ownership concentration at 10% and 1% level of significance, respectively and positively
correlated with internationalization level and profitability at 1% level of significance. Finally,
biological assets intensity is positively correlated at 5% level of significance with
internationalization level.

6.2. Ordinary Least Squares (OLS) regression model

Regarding the following OLS regression model, two equations are considered for the
country-level determinant. The results are provided in table 4. In both regressions, the
presence of heteroscedasticity is analyzed with White's general test (White, 1980). This test
indicated the presence of heteroscedasticity in the second regression; therefore, the
corresponding equation is re-estimated, adjusting the standard errors for heteroscedasticity.

Index i b0 b1 BIO b2 HELD b3 LOG ( SIZE ) b4 AUDIT b5 INT b6 STOCK b7 ROE b8 j 1 SECTOR j b9 LEGAL u i
j 4
(2)

Indexi b0 b1 BIO b2 HELD b3 LOG( SIZE) b4 AUDIT b5 INT b6 STOCK b7 ROE b8 j 1 SECTORj b9 l 1 CLUSTERl ui
j 4 l 3
(3)

Mandatory and voluntary disclosure is statistically positive related to biological assets

intensity, firm size, sector (foresting agriculture, forestry and fishing; manufacturing),
representing a common law country and the cluster 1 and surprisingly to ownership
concentration, as explained below.
Biological assets intensity: This finding is consistent with Scherch, Nogueira, Olak, and
Cruz (2013) and also with other non-financial assets, for example goodwill impairment
(Amiraslani, Iatridis, and Pope, 2013; Heitzman, Wasley, and Zimmerman, 2010; Glaum,
Schmidt, Street, and Vogel, 2012; Shalev, 2009) and provisions (Chavent, Ding, Fu, Stolowy,
and Wang, 2006).
Firm size: This finding is consistent with prior literature (Lan, Wang, and Zhang, 2013;
Amiraslani, Iatridis, and Pope, 2013; Glaum, Schmidt, Street, and Vogel, 2012; Oliveira,
Rodrigues, and Craig, 2006; Depoers, 2000).
Sector: Amiraslani, Iatridis, and Pope (2013) have concluded that the oil and gas sector
reveals a high level of compliance in the impairment-intensive sector. In this paper,
considering equation (2) on average and other things being equal, firms in sectors 1 and 3
exhibit a 14.42% and 11.24% level of disclosure respectively, which is higher than firms that
21
belong to other sectors (and considering equation (3), where the results are 11.40% and
10.07%, respectively, with the same sign). This finding is consistent with the fact that these
sectors are associated with biological assets.

Table 4. Ordinary Least Squares regressions.

Equation: (2) (3)

Sample: 1 269 1 269
Included observations: 187 after adjustments 180 after adjustments
Dependent variable: INDEX INDEX
Variable Coefficient Prob. Coefficient Prob.
C 0.073439 0.6218 0.106950 0.4950
BIO 0.006877 0.0000 0.007678 0.0001
HELD 0.001217 0.0182 0.001158 0.0294
LOG (SIZE) 0.019834 0.0644 0.017234 0.0993
AUDIT -0.008711 0.8316 -0.010182 0.7951
INT -0.000369 0.3429 -0.000266 0.4729
STOCK -0.040173 0.2676 -0.044617 0.2643
ROE 0.000206 0.8152 6.95E-05 0.9417
SECTOR=1 0.144243 0.0033 0.113958 0.0100
SECTOR=2 0.076238 0.3575 0.069783 0.4768
SECTOR=3 0.112354 0.0088 0.100730 0.0147
LEGAL 0.056764 0.0628
CLUSTER=1 0.068704 0.0972
CLUSTER=2 0.020560 0.5970
R-squared 0.260170 0.282930
Adjusted R-squared 0.213666 0.231404
S.E. of regression 0.186142 0.180969
F-statistic 5.594608 5.491027
Prob (F-statistic) 0.000000 0.000000
Prob (Wald F-statistic) 0.000422

Legal status: Regarding the LEGAL variable, the results corroborate the theoretical
background (La Porta, Lopez-de-Silanes, Shleifer, and Vishny, 1998). With regard to the
CLUSTER variable, this result is confirmed by Amiraslani, Iatridis, and Pope (2013:47), who
state the significance of cluster 1 countries in the model underscores the relevance of a
strong economic and institutional environment in promoting IFRS compliance.
Ownership concentration: Depoers (2000) rejects the influence of this variable on voluntary
disclosure in the French context. Also, Rahman, Perera, and Ganesh (2002:72) have compared
accounting regulations and accounting practices in Australia and New Zealand and revealed
that ownership concentration does not seem to be associated with practice harmony for
mandatory categories and exhibits also a positive sign relate to disclosure.
Furthermore, the relation between mandatory and voluntary disclosure and the type of
auditor, internationalization level, listing status and profitability is not supported by the
results.
Type of auditor: This result is probably related to the fact that the majority of the firms are
audited by a Big 4 auditing firm, and so the variable has little exploratory power. Regarding
the negative sign, Lan, Wang, and Zhang (2013:12) have analyzed the voluntary disclosure
22
determinants of Chinese listed firms and have suggested that it is possible that firms audited
by the Big 4 attract more attention than other firms and release more information through
other channels, for example the media. Also, and regarding biological assets disclosure, Elad
and Herbohn (2011:116) have concluded that notwithstanding this low level of compliance
none of the companies received a qualified audit opinion due to insufficient disclosure.
Presumably, the auditors adopted a flexible approach that recognizes the salience of each item
and the individual circumstances of each company when assessing the adequacy of
disclosure.
Internationalization level: Oliveira, Rodrigues, and Craig (2006) have also rejected that the
extent of voluntary disclosure of intangibles information is positively related to the
internationalization of the firm, which was measured by the same variable.
Listing status: Even though Oliveira, Rodrigues, and Craig (2006) have concluded that this
variable explains the extent of voluntary disclosure of intangibles information, it is verified to
a lesser extent when compared to other factors. Amiraslani, Iatridis, and Pope (2013) state
that this variable is not considered a significant determinant of compliance with goodwill
impairment disclosure.
Profitability: Chavent, Ding, Fu, Stolowy, and Wang (2006) have investigated the 2011
annual report of 100 French firms that integrate the SBF 120 stock index and found that the
disclosure pattern is not associated with return on equity. Furthermore, Wallace and Naser
(1995) have investigated firm-specific determinants of the comprehensiveness of mandatory
disclosure in the corporate annual reports of listed firms in the Hong Kong stock exchange
and have concluded that return on equity was less useful to explain variation in disclosure
indexes. A possible explanation is that reporting firms in HK tend to view lower profit
margins as bad news and probably accept the provision of more details as part of their
accountability to investors and other users of corporate annual reports (Wallace and Naser,
1995:346).

7. Conclusions, limitations and suggestions for future research

Regarding the recent debate on IAS 41, this paper examines the impact of firm and
country-level determinants on mandatory and voluntary disclosure of biological assets. With
regard to firm-level determinants, biological assets intensity, firm size and sector have a
significant positive impact on mandatory and voluntary disclosure practices, which is
supported by stakeholder, agency and signaling theories, respectively. Surprisingly,
23
ownership concentration has also a significant positive impact on mandatory disclosure
practices. Taking into consideration country-level determinants, the results corroborate the
theoretical background. Firms that belong to common law countries or to outsider economies
improve the extent of the mandatory and voluntary disclosure of biological assets.
There are several limitations to this paper. Firstly, there is a subjectivity problem inherent
to the construction and calculation of the disclosure index. For example, deciding which
paragraphs of the IAS 41 should be grouped and which should represent one index item;
deciding if an item is applicable to a specific firm or not. Secondly, other potential firm
determinants were not considered in this paper, such as leverage. Additionally, taking into
account that this paper focuses on the causality explanation in specific segments firm and
country-level determinants, they [researchers] need to make clear to readers that their study
makes no inferences about other contexts Luft and Shields (2013:8). Consequently, future
research on this area could follow other classifications regarding firms or countries.
Furthermore, it could be also analyzed how the impact of environmental regulations at the
country level influences firms incentives to disclosure information with respect to IAS 41.
In spite of these limitations, this research brings important contributions to the literature in
this area: this paper has extended the studies to a worldwide sample, assuring that a larger
number of countries and determinants with recent data are included. This study is particularly
useful to accounting regulators once IAS 41 is under an ongoing project for review. In
addition, this work has several implications for different users. First it promotes awareness
among standard setters concerning the biological assets disclosure constraints, which relate to
smaller firms and firms where biological assets do not represent the core business. Moreover,
stakeholders of small firms also benefit once they will recognize that there is fewer
information disclosed. Finally, all other stakeholders benefit because they will be aware of
disclosure levels and its determinants.

Appendix A. Leuzs (2010) cluster classification

Cluster membership using regulatory and reporting practice variables
Cluster 1 Cluster 2 Cluster 3

Australia Singapore Austria Japan Argentina Pakistan

Canada South Africa Belgium Korea (South) Brazil Philippines
Hong Kong United Kingdom Chile Netherlands Colombia Portugal
Ireland United States Denmark Norway Greece Taiwan
Israel Finland Spain India Thailand
Malaysia France Sweden Italy
New Zealand Germany Switzerland Mexico

24
Appendix B. Ten firms with the higher/ lower disclosure level by country and sector

Firm Country Sector Index

Higher disclosure level

Holmen Sweden Manufacturing 1.00
Forestal Cholguan Chile Manufacturing 0.95
Vipingo Plantations Kenya Agriculture, forestry, & fishing 0.95
Distell Group South Africa Manufacturing 0.94
Vina San Pedro Chile Manufacturing 0.94
R.E.A. Holdings PLC United Kingdom Agriculture, forestry, & fishing 0.90
Select Harvests Australia Manufacturing 0.89
York Timber South Africa Manufacturing 0.89
Stolt Nielsen United Kingdom Transportation & pub. utilities 0.89
Livestock Improvement Corporation New Zealand Agriculture, forestry, & fishing 0.88

Lower disclosure level

Donegal Ireland Manufacturing 0.00
Kuwait Food Company Kuwait Retail trade 0.00
L.D.C. France Manufacturing 0.00
Randon Brazil Manufacturing 0.00
Siguldas Latvia Agriculture, forestry, & fishing 0.07
Unilever Netherlands Manufacturing 0.09
Pernod Ricard France Manufacturing 0.13
BTG PLC United Kingdom Manufacturing 0.13
Vealls Limited Australia Services 0.17
Carbon Conscious Australia Transportation & pub. utilities 0.17

Appendix C. Frequency of sector Others

Sector (others) Frequency

Construction 2
Transportation & pub. utilities 5
Wholesale trade 11
Retail trade 4
Finance, insurance, & real estate 7
Services 5

Appendix D. Ranking of countries by the number of firms and the disclosure level

Country Number of firms Index

Chile 30 0.52
Brazil 28 0.59
Australia 25 0.63
Hong Kong 24 0.67
South Africa 20 0.49
United Kingdom 17 0.60
China 11 0.44
New Zealand 11 0.64
France 9 0.52
Norway 9 0.47
Philippines 8 0.49
Greece 7 0.63
Spain 7 0.39
Germany 6 0.67
Sweden 6 0.55
Finland 5 0.65
Luxembourg 4 0.44
Bermuda 3 0.50
Denmark 3 0.61
Ireland 3 0.65
25
Italy 3 0.60
Kenya 3 0.77
Netherlands 3 0.57
Portugal 3 0.59
Belgium 2 0.50
Lithuania 2 0.92
Oman 2 0.14
Peru 2 0.58
Russian Federation 2 0.44
Ukraine 2 0.50
Austria 1 0.38
Cayman islands 1 0.50
Croatia 1 0.47
Cyprus 1 0.27
Egypt 1 0.63
Faroe Islands 1 0.44
Kuwait 1 0.67
Latvia 1 0.71
Mauritius 1 0.76
United Arab Emirates 1 0.71
270

Appendix E. Pearsons correlation

Sample (adjusted): 1 269 Included observations: 187 after adjustments
Correlation
t-Statistic INDEX BIO HELD LOG(SIZE) INT ROE
INDEX 1.0000
-----
BIO 0.4279*** 1.0000
(6.44) -----
HELD 0.1181 -0.0089 1.0000
(1.62) (-0.12) -----
LOG(SIZE) 0.0006 -0.1207* -0.2295*** 1.0000
(0.01) (-1.65) (-3.21) -----
INT 0.0534 0.1627** -0.0902 0.2684*** 1.0000
(0.73) (2.24) (-1.23) (3.79) -----
ROE 0.0861 0.0907 -0.0064 0.2307*** 0.0363 1.0000
(1.18) (1.24) (-0.087) (3.23) (0.49) -----

*
statistically significant at 10% level; ** statistically significant at 5% level; *** statistically significant at 1% level

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